Nonprofit Law Prof Blog

Buchanan's 5 Mistakes of Mega Donors

I saw the following tweet today (and yes, I really should get off Twitter ....) from Phil Buchanan about an article published today on Wired.com entitled "5 Mistakes MacKenzie Bezos and other Mega-Donors Should Avoid":  

	Phil Buchanan (@philxbuchanan)
5/31/19, 9:39 AM 5 mistakes MacKenzie Bezos & other mega tech donors should avoid -- just out in ⁦‪@WIRED⁩ wired.com/story/5-mistak…

You may remember Phil from my Wednesday post as the current President of The Center for Effective Philanthropy.  First of all, I didn't realize that Jeff Bezos was getting divorced, but that being said, apparently his ex-wife took the Gates/Buffett Giving Pledge and as a result has scads of money to give to charity.  Accordingly, Mr Buchanan has some helpful advice to give to Ms. Bezos as she contemplates her philanthropy.   I won't give away all five (so that you'll read his article), but here's the first few:

    1.   "Thinking a single, quick-fix 'innovation' will solve complicated social problems

    2.   "Looking for one-size-fits-all performance measures"

Read the article for 3. 4 and 5.   I personally would add two more mistakes, however:

    6.   Not funding overhead costs, and

    7.   Bribing your favorite nonprofit into mission creep.

If you've bee in the nonprofit grant-making world for even five minutes, then I don't need to explain 6.   I recognize it isn't sexy to pay for employee health care coverage or the light bill, but work - even charity work - does not get done by sick people in the dark.     Seven is related, however - all too often I've seen charities take on large projects that monopolize their time, assets, and people to the detriment of their core mission, including diverting resources to overhead to support donor vanity projects that can't be paid out of the grant funds.   

What would you all add to the list?

EWW

Backstory on RERI; More on Revenue Procedure 2018-38 (regarding disclosure of donor identities)

Yesterday's Jack Straw Fortnightly* contains some really good updates on recent events effecting exempt organizations.  First, Jack provides some Paul Harvey-like "rest of the story" details on RERI Holdings I, LLC v. Commissioner, about which we recently posted. And in New York's ongoing efforts to discover the political motives behind the issuance of Revenue Procedure 2018-38, the newsletter reports that the Treasury Department apparently intends to comply with the Freedom of Information Act Request by which NY seeks all documents and papers leading to the issuance of the revenue procedure.  In a letter to the Court, the NY Attorney General states:

Defendants have confirmed that active review efforts in response to the October 2018 Freedom of Information Act requests at issue in this action are ongoing. As additional searches are in progress, at this time the total volume of potentially responsive records is unknown and therefore Defendants cannot propose a production and briefing schedule at this time. The IRS currently advises that it will make additional rolling productions to the Plaintiffs beginning on or before Friday; June 21 and on that date will be in a position to propose a schedule for the completion for production. The Treasury Department will be in a position to propose a schedule for its own production by the same date. In light of these commitments~ and the fact that Defendants' FOIA productions will affect the scope of any motion practice in this action, Defendants respectfully request that the parties not be required to present a briefing schedule at this time but rather to provide a status update to the Court in thirty days.

The more interesting story regarding Revenue Procedure 2018-38 is that Montana and New Jersey have joined together in a suit directly challenging the legality of the Revenue Procedure:

On July 16, 2018, Defendants the Internal Revenue Service, the United States Department of the Treasury, and David Kautter, former Acting Commissioner of the Internal Revenue Service, announced that the IRS would no longer require reporting of substantial contributor information on the Schedule B for 501(c) organizations other than § 501(c)(3) groups. The change was made through a sub-regulatory document called a “Revenue Procedure”--specifically, Revenue Procedure 2018-38.2 Revenue Procedure 2018-38 amends a prior legislative rule-26 C.F.R. § 1.6033.2--and the Administrative Procedure Act (“APA”) requires agencies to notify the public and provide an opportunity for comment before amending a legislative rule. See 5 U.S.C. § 553(b). The IRS promulgated its new Revenue Procedure in violation of the APA without notice and without giving the public any opportunity to comment. Accordingly, because Defendants promulgated Revenue Procedure 2018-38 “without observance of procedure required by law,” under the APA, this Court must hold the revenue procedure unlawful and set it aside.  5 U.S.C. § 706(2)(D). 

Darryll K. Jones

Hat Tip:  Russ Willis

 

Thinking Big Thoughts: Nonprofits and Democracy… on Twitter….

With summer here and the day-to-day craziness mostly (!) under control, I have the luxury of a few moments of just … thinking.   It’s easy to get wrapped up in the text of the Code, the most recent case law, or the scandal du jour (I’m looking at you, NRA).   But I rarely have the time to step back and take a wider scope on things.   

At this particular moment, it is courtesy of Twitter, which seems somewhat antithetical to big thoughts (literally, given the word count), but one never knows from whence inspiration may come. In the matter of just a few days, a number of Twitter posts came across my feed that connect indirectly in my mind to a larger questions of the role of charity in a democracy. 

Twitter post number 1.  Nonprofit Quarterly posted an article on its website entitled “The Road Less Traveled: Establishing the Link between Nonprofit Governance and Democracy.”

https://twitter.com/npquarterly/status/1133559834203308033?s=20

This article discusses how best practices in nonprofit board governance increase the representation of the various communities served by a nonprofit.  The failure to follow these best practices results in a “’democratic deficit’ in board governance- that is, an absence of democratic structures and processes.” Addressing the democratic deficit doesn’t just benefit the charity – it benefits our democracy writ large: “Wider constituent participation in nonprofit governance will not only help citizens develop civic skills and democratic values … .”  

Twitter post number 2.   The second Twitter post links to a Nonprofit Quarterly podcast that discusses “No White Saviors,” a movement that discusses the impact of race on hierarchy and power in the international charitable economic development space.  

https://twitter.com/npquarterly/status/1132662674855202817

This links a Nonprofit Quarterly podcast that discusses “No White Saviors,” a movement that discusses the impact of race on hierarchy and power in the international charitable economic development space.   “Those with power hav[e] the resources and capability to make decisions on what should the outcome should be for vulnerable populations.” Podcast at 6:42.

Twitter post number 3. The third post is an interview with Phil Buchanan of The Center for Effective Philanthropy, posted on vox.com, where he responds to criticism of that wealthy philanthropy is undemocratic (set for the more fully in his book, Giving Done Right).

https://twitter.com/voxdotcom/status/1132995143378845697?s=20

In the interview, Buchanan is quoted as saying:

The structural critiques are important and they play out in our democratic politics. But in the meantime, here we are. We have significant wealth that’s been accumulated in this country. We have endowed private foundations that don’t even have a connection on the board to the original donor. These are institutions that are focused on a mission. They’re focused on the public good. I like working in the day to day, in the practical reality, where there are people with decision-making power to allocate these resources. I want to help them to do it effectively.

I think all of these pieces raise interesting views on the role of power and money and the role of the charitable sector in a democracy.  At the end of the Buchanan interview, he specifically asks if we should be subsidizing all of this through the tax code, and specifically the Section 170 charitable deduction (spoiler alert: he says yes, and expand it to non-itemizers).

I’m more interested, however, in the Section 501(c)(3) implications on all of this.  Since Section 501(c)(3) is the section that creates the boundaries between that which is charitable (at least, charitable in tax terms) and that which is not, does it make sense for those rules to play a role in policing this issue.   One could view the 1969 passage of the private foundation excise taxes as the historical pre-cursor for this discussion, as at least part of the background of that legislation was to minimize the benefit to and the influence of the most wealthy through charitable vehicles.  My thoughts aren’t fully formed on this, but I found it an interesting crossing of the Twitter streams in a very short 48 hour period.  Any musings and other big thoughts are, of course, most welcome.

EWW

DOJ and IRS are on Different Sides Regarding Tax Exemption for "Safe Injection Sites." And DOJ Should Lose!

Late last year, the NY Times published an absolutely harrowing account of Kensington, described as a "Philadelphia neighborhood [that] is the largest open-air narcotics market for heroin on the East Coast."   The description makes the worst bombed out war zones sound like paradises by comparison, with hopelessly addicted poor zombie souls urinating, defecating, shooting up, and scrounging [first for another hit, then maybe food from a dumpster or trash can] all over and around the playgrounds and working class homes of families who also cannot escape. In a Forbes article two days ago, Kelly Phillips Erb reports that the Service has approved tax exempt status for an organization called Safehouse. The Philadelphia Inquirer also reports on the grant of tax exempt status.  I can't find the determination letter on the IRS website so if anybody can point me to it, I would appreciate seeing it.  Safehouse does not hide its purpose and services:

What is Safehouse? 
Safehouse is a privately funded, 501(c)(3) tax-exempt, Pennsylvania nonprofit corporation whose mission is to save lives by providing a range of overdose prevention services. The leaders and organizers of Safehouse are motivated by the Judeo-Christian beliefs ingrained in us from our religious schooling, our devout families and our practices of worship. At the core of our faith is the principle that preservation of human life overrides any other considerations.  Safehouse is one element of a much-needed comprehensive plan to address a public health crisis. The organization seeks to open the first safe injection site in the U.S. providing a range of overdose preventions services, including safe consumption and observation rooms staffed by a medical staff prepared to administer overdose reversal if needed. Additional services would include on-site initiation of Medically Assisted Treatment (MAT), recovery counseling, education about substance use treatment, basic medical services, and referrals to support services such as housing, public benefits, and legal services.  Safehouse is working with community partners to find suitable locations to deliver this unified range of services.

The "safe injection site" part of its mission is what caught the eye of DOJ (more on that below).  Somehow, I don't think the Obama, Bush II, Bush I, or even the Reagan administrations would have fought this, but this is a nonprofit tax blog run by we pseudo-journalists so I will try not to be too biased.  We all have them -- biases, I mean -- but at least I admit mine.  Anyway, a safe injection site is a place where an addict can go to shoot up safely, monitored and prevented from overdosing, and thereafter (or before) offered extensive treatment, counseling, and intervention.  I just know a little about tax.  But it seems to me that prohibiting safe injection sites to combat drug addiction is like outlawing fire hydrants to prevent dogs from peeing outside.  Addicts are going to addict and dogs are going to pee!  Anyway, here is how Safehouse describes safe injection sites:  

SAFE INJECTION SITES AND HARM REDUCTION

• • What is harm reduction?
    Harm reduction in substance use treatment is aimed at decreasing the negative consequences of substance use, and it includes elements of safer use, managed use, and medication-supported treatment plans. Harm reduction is designed to address the circumstances of the addiction in addition to the addiction itself, striving to minimize the harmful effects of addiction while recognizing that drug addiction cannot be completely eliminated. Current leading scholarship establishes that a demonstrably effective approach to combating substance use disorder is to encourage treatment while providing harm reduction.
    
     
  • Do safe injection sites exist elsewhere?
    Yes. The first government-authorized supervised consumption room opened more than 30 years ago in Switzerland. Today, more than 120 supervised consumption sites are operating in Europe, Australia, and Canada. The availability of overdose prevention services is increasing as research confirms the effectiveness and the advantages to the broader community. Currently, no such program exists in the United States.

 The irony is that while Safehouse has been granted tax exempt status, DOJ is suing to shut it down.  "Safehouse officials said gaining tax-exempt status lends the organization legitimacy from the federal government, even as another arm of the government is seeking to block it from opening. The nonprofit is facing a federal lawsuit from the Department of Justice."  Safehouse's website points out though that DOJ is not [yet] seeking to seize property or throw anybody in jail.  It just wants to outlaw a practice that nearly half the countries in Western Europe, in Canada, and in Australia already use to fight drug abuse.  Those are some great guys and gals over there at DOJ but I wonder if they have read the NY Times article describing the human carnage -- epidemic is way too soft a word to describe what's going on.  The complaint implicitly acknowledges Safehouse is on to something good, I think.  It makes it sound like, "we been through drug crises before, this is nothing new, everybody stay calm and lets "just say no."  It almost sounds like DOJ is ashamed at what its trying to do (my bias again, probably):

While our country is in the midst of an opioid epidemic, this is not the first time we have faced a drug crisis.  From crack cocaine, to methamphetamine, to heroin and fentanyl, our country has faced the challenge and tragedy of drug addiction for many years.  Congress and the President have sought to address the challenges of drug addiction, abuse, and diversion with the Controlled Substances Act ("CAS"), enacted in 1970 . . . The legislation's calculated Scheme includes the prohibition of certain conduct involving controlled substances.  Most relevant to the suit at hand, the CSA provides that it is wholly unlawful to manage or control any place, regardless of compensation, for the purpose of unlawfully using a controlled substance.  Defendant Safehouse seeks to disregard the law and override Congress' carefully balanced regulatory scheme by establishing, managing, and controlling sites in Philadelphia that will allow individuals to engage in the illicit use of controlled substances, namely, heroin and fentanyl. For purposes of this action, it does not matter that Safehouse claims good intentions in fighting the opioid epidemic.  

Safehouse filed an astonishingly literary answer that more seriously describes the problem and makes a strong case that it is providing medical treatment, not violating a law enacted before big pharma ever dreamed of getting rich selling heroin that looks like aspirin.  Safehouse, by the way, has an impressive group of lawyers working pro bono, apparently.  I betcha more than one in three people reading this blog or in any other population sample knows someone or have been personally impacted by the opioid epidemic.  I wouldn't be surprised either if, having learned of the IRS's actions, DOJ is already demanding that the exemption be revoked.  The grant of tax exemption obviously undercuts the notion that safe injection sites are illegal or against "fundamental public policy."  As for the latter rationale, we can probably safely conclude that there just is no public policy.  Besides, the CSA was passed a long time before opioids were dumped on unsuspecting housewives, executives, would-be athletes, and active duty military men and women, and veterans.  Sheeeesh!  DOJ should get a grip!  As the opioid crisis rages through every neighborhood in America -- urban, suburban, rural, mountains, rich, poor, white, brown, black, whatever -- we keep whistling right past the graveyard.  

But I digress.  I should talk about the illegality and public policy doctrines as they relate to tax exemption and why I think DOJ should lose this one.  But I gotta grade some more papers now so I'll do that tomorrow.  Feel free to provide some perspectives on that in the comments. 

 

Darryll K. Jones 

RERI Holdings v. Commissioner Affirmed by DC Circuit: Pigs and Hogs

We previously discussed how a seemingly simple administrative omission (failure to include basis of donated property on Form 8283 (valuation of non-cash donation)) cost a taxpayer a $33 million charitable contribution deduction, plus a 40% gross valuation misstatement penalty.  We speculated, based on the details of the transaction as described by the Tax Court, that the real reason for the result was that the taxpayer claimed a $33 million charitable contribution deduction for a donation worth only $3.3 million. 

Last Friday, the Circuit Court of Appeals for the District of Columbia affirmed the Tax Court opinion denying the deduction and upholding a 40% valuation misstatement penalty.  The entire case is probably a good example of just plain bad tax planning by the taxpayer, and very good pretrial work by DOJ Tax.  Its always easy to criticize with the benefit of hindsight but there were red flags all over this transaction.  Billionaire Miami Dolphins owner Stephen Ross made a $5 million charitable pledge to the University of Michigan.  Through a series of transactions, he then transferred an interest in a "successor" LLC whose only asset was a future interest in improved property to the University of Michigan in satisfaction of the charitable pledge.  Although he pledged a $5 million donation, he claimed a charitable contribution deduction of $33 million.  That valuation amount was based on an appraisal made when the property was originally acquired by Ross through a different LLC, but the property was subject to a long term lease that significantly reduced its market value by the time it was donated.  And while the donor claimed a $33 million donation,  Big Blue sold the property for only $2 million two years later to one of Mr. Ross's business partners in the very same LLC that originally owned the property.  In light of those smelly facts, the omission of the cost basis (which was $2.95 million at best) on Form 8283 seems intentional.  The DC Circuit speculated that the Service would have questioned how the property appreciated to $33 million dollars in only two years if the basis had been included.  

The facts are much more detailed but when boiled down to their essence, it looks like Ross pledged $5 million to Michigan, then sold property to a business partner for about that amount and donated the [$5 million] proceeds to Big Blue.  Here is a fairly entertaining, easier to understand summary of the entire scheme.  By using property instead of cash, perhaps Ross's advisers thought he would get away with inflating the value of the charitable contribution deduction to $33 million.  He lost bigtime on that gamble.  Pigs turn into hogs and hogs get slaughtered!  

Darryll K. Jones

The Cost of Nonprofit Hospital Tax Exemption and The Value of Community Benefits in 2016 -- Lies and Statistics?

Ernst and Young conducted a study and prepared a report regarding tax-exempt hospitals.  The study estimates that hospital tax exemption cost us $9 billion in 2016 while providing community benefit worth $95 billion for a net gain to the public of $84 billion.  An earlier 2017 study contains similar conclusions regarding the cost and community benefits in 2013.  Here is the press release announcing the May 2019 findings: 

EY was commissioned by the American Hospital Association to analyze the federal revenue forgone due to the tax exemption of non-profit hospitals as well as the community benefits they provide. This study presents estimates for 2016, the most recent year for which community benefit information is available for non-profit hospitals based on Medicare hospital cost reports for approximately 3,000 non-profit general hospitals. The analysis does not account for other non-profit specialty hospitals, such as psychiatric or long-term acute care.

In 2016, the estimated tax revenue forgone due to the tax exempt status of non-profit hospitals is $9.0 billion. In comparison, the benefit tax-exempt hospitals provided to their communities, as reported on the Form 990 Schedule H, is estimated to be $95 billion, 11 times greater than the value of tax revenue forgone.

The analysis does not include the deductibility of charitable contributions to non-profit hospitals. If deductions to non-profit hospitals were no longer deductible but charitable donation provisions were otherwise unchanged, donors would likely shift their donations to other tax-exempt entities, including both those affiliated and unaffiliated with hospitals, resulting in a negligible net federal revenue impact.

The analysis does incorporate an estimate of the current state and local revenue forgone due to tax exemption. If federal tax exemption were restricted, the assumption is that state and local tax exemptions would also be restricted, thereby increasing state and local taxes on non-profit hospitals. As a result, a hospital’s federal corporate taxable income would be reduced by an amount equal to the increase in state and local taxes.

I don't think I would characterize the study as an "independent assessment."  The value of the community benefit is derived from figures provided by the hospitals and they aren't  exactly disinterested in the study's outcome.  I'm not saying they are lies, I'm just saying . . .

Darryll K. Jones

Latest Salvo in Nonprofit Culture War Targets Rep. Elijah Cummings

We have previously blogged about the sudden and increasing use of Form 13909 (Tax Exempt Organization Complaint (Referral)) to bring complaints from left or right leaning organizations against exempt organizations generally considered right or left leaning, respectively.  We've blogged about complaints against the Southern Poverty Law Center and the NRA.  The latest complaint, filed by the right leaning National Legal and Policy Center against the left leaning Center for Global Policy Solutions (CGPS), asserts that Maya Rockeymoore Cummings, wife of Representative Elijah Cummings (D-MD) and a principal fiduciary of CGPS, is the beneficiary of illegal private benefit and prohibited campaign intervention by CGPS.  Here is a summary of the complaint from the Washington Examiner:  

Rockeymoore runs two entities, a nonprofit group called the Center for Global Policy Solutions and a for-profit consulting firm called Global Policy Solutions, LLC, whose operations appear to have overlapped, according to the IRS complaint filed by watchdog group the National Legal and Policy Center on Monday. The complaint states that the arrangement may have been used to derive "illegal private benefit." Global Policy Solutions received more than $6.2 million in grants between 2013 and 2016, according to tax records. Several of the nonprofit group’s financial backers — which included Google, J.P Morgan, and Prudential — have business interests before the House Committee on Oversight and Government Reform. Cummings has served as Democratic chairman of the committee since January and previously served as ranking member.  The largest contributor to the nonprofit organization was the Robert Wood Johnson Foundation, a company that is regulated by Cummings’ committee. The foundation, which gave a total of $5.5 million to Rockeymoore’s consulting firm and $5.2 million to her nonprofit group, ceased supporting her groups in 2017 . . . The complaint asked the IRS to investigate the “shared leadership,” “integrated operations,” and “shared address and physical facilities” of her two companies. Rockeymoore’s nonprofit and the LLC have mutual clients, donors and projects, and were located at the same address and share a phone number.  According to its website, the Center for Global Policy Solutions is a nonprofit group that seeks to “create healthier communities, strengthen Social Security, and close racial wealth disparities." The for-profit consulting firm, Global Policy Solutions LLC, describes itself as “a social change strategy firm dedicated to making policy work for people and their environments.” The complaint states that they “appear to operate almost as a single entity, allowing for an illegal private benefit for Maya Rockeymoore Cummings and her husband."

Today, the Washington Post published a story in which Maya Rockeymoore Cummings and Representative Elijah Cummings pushed back against the complaint:  

“It appears a conservative front group and a news outlet . . . are pushing a hit piece filled with faulty research, lies and innuendo in an attempt to tarnish my personal reputation, professional work and public service as well as that of my spouse,” Rockeymoore Cummings said in a statement, calling the effort a “distasteful attempt to intimidate my family into silence at such a pivotal moment in our nation’s history.” Cummings echoed his wife’s remarks in a statement of his own, dismissing the claims as “a fabricated distraction from the important work being done on behalf of Americans, such as lowering the skyrocketing prices of prescription drugs.”

The indications of improper private benefit and campaign intervention, according to the complaint include:

1. Shared leadership between CGPS and GPS, LLC
2. Integrated operations of CGPS and GPS, LLC
3. Shared address and physical facilities
4. Lack of physical facilities despite million-dollar government contract
5. Website URLs, linked websites and similar design

The complaint seems obviously politically motivated -- Rep. Cummings is leading the House efforts to get at President Trump's tax returns and is a leading proponent, according to some, of impeaching the President.  His wife is Chairperson of the Maryland Democratic Party and a former candidate for Governor of Maryland.  Even so, the complaint makes a prima facie case (that is, it states facts which, if true support a finding of private benefit), it seems to me.  I wonder how the Service is dealing with all of these complaints.  After what the folks at TaxProf Blog called the "IRS Scandal" every single day for nearly 5 years, I gotta think the Service is probably not assigning anybody to seriously delve into any of the culture war complaints.  

Darryll K. Jones

Mayer on Taming the Wild West of Nonprofit Political Involvement

Our own Lloyd Hitoshi Mayer recently posted "When Soft Law Meets Hard Politics: Taming the Wild West of Nonprofit Political Involvement."  Here is the abstract:

Beginning in the 1990s and continuing to today, many of the legal and psychological barriers to nonprofits becoming involved in electoral politics have fallen. At the same time, political divisions have sharpened, causing candidates, political parties, and their supporters to scramble ever more aggressively for any possible edge in winner-take-all political contests. In the face of these developments, many nonprofits have violated the remaining legal rules applicable to their political activity with little fear of negative consequences, especially given vague rules and a paucity of enforcement resources. Such violations include underreporting of political activity in government filings, fly-by-night organizations that exist only for one election cycle in order to avoid penalties, and even organized campaigns that encourage nonprofits to break these rules. The increasingly visible disregard of these rules threatens not only to damage the public reputation of the nonprofit sector as a whole but also to undermine public respect for the rule of law more generally.

Many scholars, journalists, and others have documented the increasing involvement of nonprofits in politics, including numerous apparent violations of the remaining rules governing such activity. Commentators have proposed a variety of piecemeal solutions, ranging from overhauling the existing rules to repealing those rules in part or completely, sometimes with a focus on tax laws, sometimes with a focus on election laws, and sometimes with a focus on state nonprofit laws. What is needed, however, is a comprehensive approach to this issue that considers the various ways nonprofits can be involved in politics, the positive as well as negative effects of such involvement, and the interaction between these different bodies of law at both the federal and state level that relate to such involvement.

This article takes such a comprehensive approach. Drawing on the now extensive information regarding nonprofit political involvement, and where such involvement appears to have repeatedly violated the existing legal rules, this article will first provide a roadmap of such involvement and the points where political pressures are overwhelming the existing legal rules and the agencies charged with enforcing them. Next, this article will describe the various solutions proposed by commentators, highlighting the incomplete nature of those solutions but also the insights they provide regarding the strengths and weaknesses of the various legal approaches for addressing such involvement. These insights include ones relating to the historical reasons for why the legal rules have developed in the manner they have, as well as ones relating to the relative institutional competencies of the agencies charged with interpreting and enforcing those rules.

Finally, this article will propose an overall approach to modifying the existing legal rules that relieves the identified pressure points without compromising the important public policies underlying the current legal rules, including ensuring the continuing ability of nonprofits to contribute to political debates in the United States. This approach involves revising the federal tax rules for tax-exempt nonprofits to clarify what constitutes prohibited political activity for charities, to loosen the unnecessary (from a tax policy perspective) restrictions on political activity by non-charitable, tax-exempt nonprofits, and, most controversially, to permit churches and other houses of worship to engage in political activity in the context of internal, in-person communications to members. It also involves shifting public disclosure rules relating to political activity from federal tax law to federal and state election law, refocusing such public disclosure on a broader range of such activity, and increasing the donation amounts that trigger such disclosure with respect to donor identities.

This comprehensive approach recognizes the importance of maintaining the current tax policy of not subsidizing efforts to support or oppose candidates for elected office while at the same time not unduly burdening the free speech, free association, and free exercise of religion rights of individuals who collectively engage in political activity through nonprofits. It also recognizes the institutional limitations of the Internal Revenue Service when it comes to enforcing tax rules relating to political activity, particularly given the breakneck pace of electoral politics, by placing greater emphasis on the federal and state laws, and their related agencies, that specifically regulate elections. By doing so, this approach recognizes and anticipates the dynamic nature of political involvement by nonprofits and so seeks not to prohibit but instead to channel that involvement in a manner that furthers overall democratic participation goals.

 

Darryll K. Jones

Did Mr. Smith Go to Morehouse Without First Talking to His Tax Attorney?

Its commencement season and the biggest story thus far is Mr. Smith's announcement that he would pay off the student loans of the Class of 2019 at Morehouse College ("The House").  The New York Times published a teaser about the tax consequences to all involved:

On Morehouse’s Atlanta campus and beyond, administrators, students and parents — and no shortage of tax and philanthropy experts — have spent the last few days wondering how, exactly, Robert F. Smith, a titan tech investor, would fulfill his promise to 396 graduates. The surprise announcement was both an extraordinary gift — and a complicated one.

I read the article thinking it would address Sections 61(a)(11), 102, 108, 117, 501(c)(3) and all the gift tax provisions the details of which I have spent my time since tax school trying never to have to deal with.  But it did not.  Some of the comments to the article speculate that a billionaire would not be so unsophisticated that he would not have consulted a tax attorney before deciding to pay off the student loans -- I was available, he coulda just flown me to some island resort and we coulda talked it over after a couple of rounds of golf! I would have reported the income even!

Anyway, here is my starting hypothesis.  The students do not have COD because the payment or discharge of their debts was simply the vehicle by which Mr. Smith demonstrated his "detached and disinterested" generosity.  It is a gift under 102.  An article in Forbes agrees.  This was not like Oprah hollering on national TV (from which she received advertising revenue) that "you get a car, you get a car, and you get a car!"  If not a gift, much of the payments would be excluded as qualified scholarships under IRC 117.   If its income, no doubt the students' have fewer assets than liabilities -- they were broke students, after all! -- so 108 would provide exclusion.  As for the gift tax consequences, Mr. Smith might have avoided that (if they even apply) by making a charitable contribution (instead of a gift directly to the students) to The House, a 501(c)(3) organization no doubt, with the stipulation that it be used to pay the expenses of the class of 2019.  As to the latter assertion, I suppose I would want to research whether targeting the gifts to a particular class strips the "contribution" of its deductibility just to make sure, but I doubt it.  Comments?

Darryll K. Jones

 

Edward Zelinsky on Nonprofit Political Speech

Zelinsky recently posted "Applying the First Amendment to the Internal Revenue Code:  Minnesota Voters Alliance and the Tax Law's Regulation of Nonprofit Organizations' Political Speech."  Here is the abstract:

On its face, Minnesota Voters Alliance v. Mansky is about which T-shirts, hats and buttons voters can wear at the polls. However, the U.S. Supreme Court’s First Amendment analysis in Minnesota Voters Alliance extends beyond apparel at polling places. That decision impacts the ongoing debate about the Johnson Amendment, the now controversial provision of the Internal Revenue Code which forbids Section 501(c)(3) organizations from intervening in political campaigns. Minnesota Voters Alliance also affects the proper construction of Section 501(c)(3)’s ban on lobbying by tax-exempt entities as well as other provisions of the tax law taxing and precluding campaign intervention by tax-exempt organizations.

In contrast to current law, Minnesota Voters Alliance requires that these provisions of the tax law be construed to comply with the First Amendment mandate that restrictions on speech be reasonable, objective, workable and determinate. After Minnesota Voters Alliance, the Johnson Amendment should be interpreted as only proscribing 501(c)(3) entities from expressly endorsing or opposing particular candidates, political parties or ballot questions or from engaging in the “functional equivalent” of such express advocacy. Under this test, tax-exempt entities would not be precluded from engaging in more general issue advocacy.

The other provisions of the tax law preventing tax-exempt entities from participating in political campaigns and taxing such participation should be construed in the same say. These other features of the tax law should now be understood as precluding and taxing only express advocacy of or opposition to particular candidates, parties or ballot questions, or as prohibiting and taxing the “functional equivalent” of such explicit expression.

For purposes of applying Minnesota Voters Alliance to the Johnson Amendment and these other provisions of the Internal Revenue Code, the applicable test should be the standard articulated by Chief Justice Roberts in FEC v. Wisconsin Right to Life, Inc. Under this standard, the functional equivalence of express advocacy would be defined restrictively as a statement “susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate.”

The Internal Revenue Code need not be amended to fashion these statutory provisions to comply with Minnesota Voters Alliance, though modifying the language of the Code is one way that the Code’s current restrictions on the political speech of tax-exempt entities could be brought into compliance with the First Amendment. Alternatively, such compliance could be achieved administratively by revoking the portions of Rev. Rul. 2007-41 pertaining to issue advocacy under the Johnson Amendment and by amending the regulations under Section 501(c)(3) to clarify that forbidden lobbying occurs only when the a tax-exempt entity explicitly supports or calls for defeat of a particular legislative proposal pending before a public lawmaking body or before the electorate. Similarly, the IRS can modify Rev. Rul. 2004-06 to bring it into compliance with the First Amendment standard of determinacy announced in Minnesota Voters Alliance. Likewise, the Treasury can by regulation clarify that, for purposes of Internal Revenue Code Sections 527 and 501(c)(4), campaign intervention means explicit endorsement of or opposition to a candidate, not more generalized discussion of issues and legislation. The Treasury would thereby interpret those Code-based restrictions on political activity in a manner which satisfies the First Amendment signposts of reasonability and determinacy articulated in Minnesota Voters Alliance.

Darryll K. Jones

WaPo gives Trump Four "Pinnochios" for his repeated claim that His Administration Repealed Prohibition Against Campaign Intervention

Shakespeare's MacBeth, having been asked in tax class to summarize the impact of Section 2, Executive Order 13798, described it ruefully, as "a tale told by an idiot, full of sound and fury, signifying nothing:" Here is the provision about which he might have spoken::

Sec. 2.  Respecting Religious and Political Speech.  All executive departments and agencies (agencies) shall, to the greatest extent practicable and to the extent permitted by law, respect and protect the freedom of persons and organizations to engage in religious and political speech.  In particular, the Secretary of the Treasury shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury.  As used in this section, the term “adverse action” means the imposition of any tax or tax penalty; the delay or denial of tax-exempt status; the disallowance of tax deductions for contributions made to entities exempted from taxation under section 501(c)(3) of title 26, United States Code; or any other action that makes unavailable or denies any tax deduction, exemption, credit, or benefit.

If, by his comment, Mr. MacBeth might have intended that the provision is a slick piece of legalese doing nothing to change the status quo ante, I agree.  Of course, if you consider the larger context, the provision is not so much a work of legal idiocy as it is a work of political genius.  It has, as the Washington Post pointed out a week or so ago, allowed the President to proclaim in about ten different campaign speeches that he has repealed the "Johnson Amendment," including this assertion at the National Day of Prayer event earlier this month: "They took away your voice politically and these are the people I want to listen to politically but you weren't allowed to speak. They would lose their tax-exempt status.That's not happening anymore so we got rid of the Johnson Amendment. That's a big deal."  To the willfully mis- or uninformed -- most of the elctorate,  I mean -- the provision proves the President's religious and political bona fides.  The real genius is that somebody in Treasury gave the President what he wanted without doing greater harm to the Constitutional order of things -- Congress makes the laws and only Congress can repeal a law. The Wapo piece gives a nicely concise discussion of the prohibition against campaign intervention.  One that makes me wonder who, really, is the idiot in all of this.  After all, and at least when applied to houses of worship, the prohibition against campaign intervention is so obviously unconstitutional that the Service cringes from its enforcement like Superman from kryptonite.  

We all know at least one intolerably obnoxious judge, partner, associate, or faculty colleague who we can't stand agreeing with but who we secretly know is right most of the time.  Its just the damnable way they go about being right that makes us want to disagree when we know they are probably right as a matter of substance.  And the continued insistence that we are right, when we know we are wrong, only engenders disrespect for the institution of our selves.  But I digress.  As much as I hate the way the President's laughing smugness sounds like fingernails on a chalkboard -- you have to be pretty old to even know what fingernails on a chalkboard feel and sound like and I can't believe how old I am getting -- I gotta admit that my instinct to defend the "Johnson Amendment" is based more on my . . . well, "disdain" for the messenger, than out of a disagreement with the message.  By the way, we all know that LBJ had the prohibition  inserted because he wanted to shut down a nonprofit political opponent, but was it called the "Johnson Amendment" before the Oangefuhrer started using that phrase? The prohibition against campaign intervention might just be defensible as a substantive matter, particularly if we think of tax exemption as public subsidy.  The public, the argument might assert, should not be forced to subsidize political speech with which even a minority of people disagree.  A weak argument, in my view, but worth considering.  Deep down inside, though, we know the prohibition against campaign intervention as it applies to religious worship is unconstitutional.  The best evidence of that is that the Service is loathe to enforce it against worship leaders.  Something about that First Amendment, free exercise thing, a government employees pledge to "support and defend the Constitution.".  So the four Pinnochios awarded to the President are well-deserved, but let's admit that the President's exploitation of the executive order's "sound and fury" is bottomed on his innate ability to recognize when a legal doctrine is no more than a house of cards.  So it is that the prohibition against campaign intervention continues to engender disrespect for the IRS (through no fault of its own) and the law itself.  Its stupid and we should get rid of it, insofar as religious organizations are concerned.

 

Darryll K. Jones

 

 

 

 

 

Eldar: Designing Business Forms to Pursue Social Goals

Ofer Eldar (Duke University) has posted Designing Business Forms to Pursue Social Goals, Virginia Law Review (forthcoming). Here is the abstract:

The long-standing debate about the purpose and role of business firms has recently regained momentum. Business firms face growing pressure to pursue social goals and benefit corporation statutes proliferate across many U.S. states. This trend is largely based on the idea that firms increase long-term shareholder value when they contribute (or appear to contribute) to society. Contrary to this trend, this essay argues that the pressing issue is whether policies to create social impact actually generate value for third-party beneficiaries — rather than for shareholders. Because it is impossible to measure social impact with precision, the design of legal forms for firms that pursue social missions should incorporate organizational structures that generate both the incentives and competence to pursue such missions effectively. Specifically, firms that have a commitment to transacting with different types of disadvantaged groups demonstrate these attributes and should thus serve as the basis for designing legal forms.

While firms with such a commitment may be created using a variety of control and contractual mechanisms, the related transaction costs tend to be very high. This essay develops a social enterprise legal form that draws on the legal regime for Community Development Financial Institutions (“CDFIs”) and European legal forms for work-integration social enterprises (“WISEs”). This form would certify to investors, consumers and governments that designated firms have a commitment as social enterprises. By obviating the need for costly social impact measurement, this form would facilitate the provision of subsidy-donations to social enterprises from multiple groups, particularly investors (through below-market investment) and consumers (via premiums over market-prices). Thus, this social enterprise form would be to altruistic investors and consumers what the nonprofit form is to donors.

Moreover, the proposal could facilitate the flow of investments by foundations in social enterprises (known as program-related investments, “PRIs”) because it would help foundations verify the social impact of their investees, which could help them avoid potential tax penalties. In addition, by giving subsidy-providers greater assurance that social enterprises pursue social missions effectively, the proposed legal form could facilitate public markets for social enterprises.

Lloyd Mayer

Chen & Liu: Regulating Provisions of Charitable Activities by Religious Organizations

Jianlin Chen (University of Melbourne) and Junyu Loveday Liu (London School of Economics & Political Science; K&L Gates) have published Managing Religious Competition in China: Regulating Provisions of Charitable Activities by Religious Organizations, in Regulating Religion in Asia: Norms, Modes and Challenges (Cambridge University Press 2019). Here is the abstract:

Drawing on the Law & Religious Market theory, this Chapter utilizes the case study ofChina to explain 1) how regulation of ostensibly non-economically motivated activities(i.e., religion and charity) can be properly conceived as a form of market regulation; and, 2) how such a conception can add a valuable dimension to the discourse. In particular, this Chapter situates China’s regulation of charitable activities by religious organizationsin the context of recent major legal reform on charity law and highlights the contradictory treatment where, on one hand, the law recognizes the self-interested motivation of participants and donors of charitable activities and accommodates their co-opting of charitable activities to promote or advance commercial interests but, on the other hand, specifically prohibits religious organizations from any religiouspropagation during provisions of charitable services. This Chapter argues that from the perspective of market regulation, such denial of religious “self-interest” hampers the purported policy objectives of promoting greater religious participation in charitableactivities but may be justified on the grounds that it promotes religious competition that is normatively desirable.

Lloyd Mayer

Charitable Contribution Cases: An Alleged $151 Million Conservation Easement; Tens of Millions in Bogus Contributions

Two recent cases highlight ongoing issues with the federal charitable contribution deduction.

In Battelle Glover Investments, LLC v. Commissioner (link to petition available from Tax Analysts; subscription required), a partnership is challenging a $151 million charitable contribution deduction disallowance arising out of a conservation easement donation. According to the petition, the conservation easement was on approximately 97.8 acres of limestone mining property donated to the Southeast Regional Land Conservancy, Inc. The petition indicates the Internal Revenue Service is disallowing the deduction on multiple grounds, including that the partnership failed to satisfy all of the requirements of Internal Revenue Code section 170 and that the correct valuation of the conservation easement was zero. The IRS is also seeking to impose a 40% valuation misstatement penalty. This case is of course only the latest, high-dollar conservation easement dispute, as the IRS has brought hundreds of cases challenging charitable contribution deductions in this area, as documented by co-blogger Nancy A. McLaughlin (University of Utah).

In United States v. Meyer, the federal government successfully sought injunctive relief against an attorney who promoted the "Ultimate Tax Plan," also sometimes referred to as a "Charitable LLC" or "Charitable Limited Partnership." According to the complaint filed last year in federal district court, the scheme involved sham donations to purported charities controlled by Mr. Meyer and his advice to the participants that as a result of those donations they could take unwarranted charitable contribution deductions. The complaint stated that the total cost to the Treasury was more than $35 million in lost tax revenue. Each of the three charities involved were based in Indiana and had successfully applied for IRS recognition of exemption under Code section 501(c)(3). However, in recent years Mr. Meyer had entered into agreements with the IRS that retroactively revoked the tax-exempt status of all three charities based on either inurement grounds or their use in the alleged scheme. Mr. Meyer made money off this scheme by charging various fees related to the purported donations. The case apparently has had significant ripple effects, in that it appears to have triggered audits of many of the scheme's participants, and possibly investigations into the financial planners and CPAs to whom Mr. Meyer marketed it (and sometimes paid for referrals). Coverage: Bloomberg Tax; Forbes.

Both these cases illustrate the potential for abuse of the charitable contribution deduction, to the significant detriment of the federal treasury.

Lloyd Mayer

 

Donor Disclosure Update: New NJ Rule; Veto of NJ Proposed Statute; 9th Circuit Divided

New Jersey is the latest state to compel disclosure of significant donors in the wake of the federal government's decision to eliminate reporting to the IRS by tax-exempt organizations (other than 501(c)(3)s) of their significant donors. NJ Attorney General Gurbir S. Grewal and the NJ Division of Consumer Affairs announced a new rule earlier this week that will require both charities and social welfare organizations that have to file annual reports with the Division's Charities Registration Section to include the identities of contributors who have given $5,000 or more during the year. (Like a number of states, New Jersey apparently defines "charitable organization" broadly for state registration purposes, so as to encompass not only Internal Revenue Code section 501(c)(3) organizations but also Internal Revenue Code section 501(c)(4) social welfare organizations.) According to statements accompanying the new rule, the donor information will not be subject to public disclosure. This announcement was in the wake of New Jersey and New York suing the federal government for failing to comply with Freedom of Information Act requests submitted by those states relating to that earlier decision, and New Jersey joining a lawsuit brought by Montana challenging the decision. 

Interestingly, however, last week New Jersey's governor vetoed a bill (S1500) that would have compelled donor disclosure by organizations engaged in independent political expenditures, among other measures. Governor Philip D. Murphy's 20-page explanation raised both constitutional concerns with the legislation as enacted and policy concerns that the bill did not go far enough in certain respects. The constitutional concerns included ones relating to the bill's application to legislative and regulatory advocacy, not just election-related expenditures. The policy concerns includes ones related to a failure to extend pay-to-play disclosures and to require certain disclosures from recipients of economic development subsidies.

In other disclosure news, the U.S. Court of Appeals for the Ninth Circuit rejected petitions fo rehearing en banc of the earlier three-judge panel decision in Americans for Prosperity Foundation v. Becerra, turning away an as applied challenge to the California Attorney General's requiring that the foundation provide a copy of its Form 990 Schedule B (which identifies significant donors) to that office. The rejection is notable because it was over a lengthy dissent by five judges, to which the three judges on the initial panel responded.

I think it can be safely predicted that in this era of "dark money" we will continue to see state level compelled disclosure developments, and litigation in response, for the foreseeable future.

Lloyd Mayer

 

Two Way Too Early Lessons from the Mess at the NRA

Details continue to emerge about the ongoing crisis at the National Rifle Association and government investigations are just starting to build up steam, so it is way too early to try to comprehensively identify nonprofit law lessons arising from this situation. That said, here are two early takes.

Boards Matter (Eventually). The NRA has a huge Board of Directors, with more than 70 members. While presumably its members are strong supporters of the NRA's agenda, they also have a legal role that gives them both access to information and credibility when making criticisms. While details about the NRA's recent problems emerged in a mid-April New Yorker story, they were given added visibility when they became the apparent basis for a leadership challenge by a faction of board members, including then-President Oliver North. That challenge failed, as did apparently earlier, quieter attempts by board members to rein in possibly problematic behavior, as explored in the New Yorker story. But that may not be the end, as the N.Y. Times reported yesterday that board member and former congressman Allen B. West has now publicly called for NRA Chief Executive Officer and Executive Vice President Wayne La Pierre to resign. One of the many board members may also have been the source of recently leaked internal memos that support many of the concerns now coming to light.

Success Does Not Excuse All Wrongdoing. Wayne LaPierre has been with the NRA since 1977, and been its head since 1991, during which time he has led the NRA to increasing prominence and influence. But despite that success, he now appears vulnerable. Indeed, in an apparent pattern that many who work with nonprofits will recognize, that success and long tenure may have led him to engage in the very transactions that could prove to be his undoing. For example, while far from the most significant questionable transaction financially or probably legally, his alleged spending of more than $200,000 for wardrobe purchases charged to an NRA vendor is, if true, a classic example of an unnecessary, self-inflicted wound (and possible excess benefit transaction for federal tax purposes). For the rank-and-file NRA member, paying him over a million dollars in compensation annually presumably can be justified by the organization's success; but then he should buy his own clothes (and who spends over $200,000 on clothes?).

With the continuing New York Attorney General, congressional, and possibly Internal Revenue Service interest, we will hopefully learn much more about how the crisis developed in the coming months. And of course this is on top of previous congressional interest in alleged Russian ties to the NRA in the time leading up to the 2016 election.

Lloyd Mayer

Feds Investigate, Baltimore Mayor Resigns

Following up on previous coverage in this space, Baltimore Mayor Catherine Pugh's nonprofit-related problems led to her resignation earlier this month in the wake of FBI and IRS agents raiding her homes and mayoral office. The issue that led to her downfall: alleged self-dealing, arising from the $500,000 purchase of a book she wrote by a nonprofit on the board of which she sat. Additional coverage: Baltimore Sun (which broke the original story); CNN; Washington Post.

Lloyd Mayer

Other Nonprofit Scandals You May Have Missed: $37 Million Class Action Settlement; "Sham" Police Charities

In a story that appeared to attract very little attention, Gospel for Asia settled a federal class action lawsuit brought against it for $37 million (!) according to a report in a Canadian news outlet. According to that report, the charity - now known as GFA World - "had been accused of diverting donations intended for India's poor to build a lavish headquarters in Texas, personal residences, and purchase for-profit businesses, including a rubber plantation and a professional soccer team." The charity also agreed to remove the wife of the charity's founder from the board of directors, and to add the lead plaintiff in the suit to the board. It is not clear whether the Canada Revenue Agency, the Internal Revenue Service, or any other government agencies are investigating. According to a report in Christianity Today, Gospel for Asia helped found the Evangelical Council for Financial Accountability, but was expelled from that organization in 2015 "after ECFA concluded that GFA misled donors, mismanaged resources, had an ineffective board, and violated most of the accountability group’s core standards." Gospel for Asia did not acknowledge any wrongdoing as part of the settlement, as it noted in a related press release.

In other news, states continue to pursue and shut down alleged "sham" police charities. In Missouri, the St. Louis Post-Dispatch reports that the Federal Trade Commission and Missouri Attorney General Eric Schmitt forced the Disabled Police and Sheriffs Foundation Inc. to shutdown after raising close to $10 million, almost all of which went to fundraising costs or the organization's executive director. The charity and the executive director did not admit to any wrongdoing, however. And in Maryland, the Baltimore Sun reports that a retired Baltimore police sergeant "has agreed to cease soliciting money for a police charity [CopStress] that the Maryland Attorney General’s Office says misled the public about its operations." The retired police officer involved contested the accusations, however, saying he was only agreeing to shut the charity down after collecting minimal donations because otherwise he faced a $30,000 fine. 

Lloyd Mayer 

Ways And Means Committee Member Calls on IRS to Investigate National Rifle Association's Exempt Status, grills Treasury IG on Lack of IRS Enforcement at Hearing Yesterday

We have previously reported on how advocates on both the right and the left have sought to enlist the IRS in cultural wars against exempt organizations considered to be enemies, respectively, of those on the left or the right.  We reported on efforts to have the Service revoke the exempt status of the Southern Poverty Law Center's exempt status here.  And on another group's effort to have the Service revoke the exempt status of the National Rifle Association here.  In the latest salvo, House Ways and Means Committee Member Bradley Schneider (Democrat, Illinois) sent a letter to the Service yesterday "strongly encouraging" the Service to investigate wrongdoing by the NRA.  Here is an excerpt from the letter:   

 

As a Member of the Ways and Means Committee, I take very seriously my role and responsibility in conducting oversight of our nation's federal tax laws and ensuring the federal tax code is working as intended.  It is with this duty in mind that I am writing to strong encourage you to investigate recent reports of possible wrongdoing by the National Rifle Association (NRA), which enjoys status as a tax-exempt organization under 501(c)(4) of the Internal Revenue Code (IRC).  The allegations against the NRA reported in The New Yorker on April 17, 2019, including instances of egregious self-dealing, deceptive billing practices, and preferences in contracting are most troubling.

. . . 

As you well know, Section 501 of the IRC lays out the types of organizations that qualify for tax-exempt status, as well the rules and regulations such organizations must follow.  It is a basic assumption that active oversight and enforcement will improve compliance.  However, in 2018, the Treasury Inspector General for Tax Administration issued a report that found the further processing of multiple legitimate referrals alleging improper political activity by tax-exempt organizations were not pursued.  This report finding raises questions about the IRS's enforcement of our federal tax laws. 

I am concerned about the potential long-term harm that diminished enforcement will have on the many nonprofit organization that do follow the rules and take their charitable and social welfare purpose seriously.  The alleged NRA operating practices also raise the question of whether current rules and procedures are adequate to guard against abuse.  

For a video of Rep. Schneider questioning the IG on the lack of IRS enforcement of tax laws regulating exempt organizations, with specific references to alleged abuses by the NRA see this:  

You can also read a partial transcript of Rep. Schneider's question and answer session yesterday with the Inspector General below the fold.

 

Darryll K. Jones

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NY Attorney General Challenges Revenue Procedure 2018-38 (regarding donor disclosure by non-501(c)(3) organizations). Full text Complaint

Recall from a previous post late last year that the IRS issued Revenue Procedure 2018-38

"which dropped the requirement that section 501(c) organizations report the names and addresses of substantial contributors to the IRS. This reporting had been done on Schedule B to the annual Form 990, 990-EZ, or 990-PF, with the information only available to the IRS and not subject to public disclosure (unlike the rest of Form 990/990-EZ/990-PF). This change is effective for tax years ending on or after December 31, 2018. The reporting requirement still applies to section 501(c)(3) organizations, however, as for those organizations there is a statutory requirement (found in section 6033(b)(5)) of such reporting." 

The stated reason for the change was: the IRS does not need personally identifiable information of donors to be reported on Schedule B of Form 990 or Form 990-EZ in order for it to carry out its responsibilities. The requirement to report such information increases compliance costs for some private parties, consumes IRS resources in connection with the redaction of such information, and poses a risk of inadvertent disclosure of information that is not open to public inspection.

Two days ago, the NY Attorney General's Office filed suit implicitly challenging the procedures to adopt Revenue Procedure 2018-38.  The full text of the complaint is also available via the link in the in the press release below the fold.  The complaint seems carefully worded, actually, not as a direct challenge to Rev. Proc. 2018-38 but rather as a demand to comply with a FOIA request seeking all documents and records relating to the decision to issue the Revenue Ruling.  It would appear that the NY AG is seeking to prove improper political motives resulted in the Revenue Procedure's issuance.  This might prove interesting later on. 

Darryll K. Jones  

 

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